Longer takeover protection for demutualized insurers

Summary#

These are proposed amendments to the rules that govern how federally regulated mutual property and casualty insurers convert into share companies. The changes would let a converted insurer’s holding company switch from the Insurance Companies Act regime to the Canada Business Corporations Act while keeping limits on takeovers, and would extend the takeover‑protection period from 2 years to 4 years. The proposal was published on June 18, 2022 with a public comment window of 30 days.

What it does#

• Allows the holding company (an “ICA holdco”) of a converted insurer to apply to discontinue under the Insurance Companies Act and continue under the Canada Business Corporations Act during the takeover‑protection period.
• Requires that such an ICA holdco include, for the duration of the protection period, a clause in its articles that limits issuing, transferring or owning its shares so it cannot have a major shareholder.
• Lets the ICA holdco remove that share‑restriction clause only if the Minister of Finance is satisfied the converted company is, or is about to be, in financial difficulty and that a proposed acquisition would help its financial condition.
• Extends the takeover‑protection period for a converted company from 2 years to 4 years.
• Fixes a wording inconsistency between the English and French versions of one of the conversion regulations.
• The specific regulations being amended are the Mutual Property and Casualty Insurance Company Having Only Mutual Policyholders Conversion Regulations and the Mutual Property and Casualty Insurance Company with Non‑mutual Policyholders Conversion Regulations.

Who's affected#

• Federally regulated mutual property and casualty insurers that choose to demutualize (convert to share companies).
• Holding companies of those converted insurers if they seek to move from the Insurance Companies Act to the Canada Business Corporations Act.
• Shareholders and potential buyers of those holding companies — the rules change which acquisitions require approval by the Minister of Finance.
• Regulators, especially Department of Finance and the Office of the Superintendent of Financial Institutions (OSFI), who will review and enforce the new requirements.
• Consumers and competing insurers could be affected indirectly through changes in competition and capital access. If it’s unclear who will be affected in specific cases, that depends on whether an insurer actually demutualizes and whether its holdco seeks continuance under the CBCA.

Why it matters#

• It gives converted insurers more corporate flexibility to raise capital and do business in the same way many other large insurers do (by using a CBCA holdco), while keeping takeover safeguards in place.
• Extending protection to 4 years gives a newly converted company more time to use market access to strengthen itself before being exposed to takeovers.
• The extra time and access to capital could improve competition in the P&C insurance market, which may lead to better products or prices for consumers.
• There are trade‑offs: a longer protection window could delay takeovers that some argue might benefit shareholders, and it depends on regulators to enforce the share‑restriction rules. This item is a proposed regulation, not final law.